Question

Aug. 1 Purchased merchandise from Abilene Company for $6,000 under credit terms of 1/10, n/30, FOB destination, invoice dated August 1.
4 At Abilene's request, Stone paid $100 cash for freight charges on the August 1 purchase, reducing the amount owed to Abilene.

5 Sold merchandise to Lux Corp. for $4,200 under credit terms of 2/10, n/60, FOB destination, invoice dated August 5. The merchandise had cost $3,000.

8 Purchased merchandise from Welch Corporation for $5,300 under credit terms of 1/10, n/45, FOB shipping point, invoice dated August 8. The invoice showed that atStone’s request, Welch paid the $240 shipping charges and added that amount to the bill. (Hint: Discounts are not applied to freight and shipping charges.)

9 Paid $120 cash for shipping charges related to the August 5 sale to Lux Corp.

10 Lux returned merchandise from the August 5 sale that had cost Stone $500 and been sold for $700. The merchandise was restored to inventory.

12 After negotiations with Welch Corporation concerning problems with the merchandise purchased on August 8, Stone received a credit memorandum from Welch granting aprice reduction of $800.

15 Received balance due from Lux Corp. for the August 5 sale less the return on August 10.

18 Paid the amount due to Welch Corporation for the August 8 purchase less the price reduction granted.

19 Sold merchandise to Trax Co. for $3,600 under credit terms of 1/10, n/30, FOB shipping point, invoice dated August 19. The merchandise had cost $2,500.

22 Trax requested a price reduction on the August 19 sale because the merchandise did not meet specifications. Stone sent Trax a $600 credit memorandum to resolve theissue.

29 Received Trax's cash payment for the amount due from the August 19 sale.

30 Paid Abilene Company the amount due from the August 1 purchase.

Prepare journal entries to record the above merchandising transactions of Stone Company, which applies the perpetual inventory system. (Identify each receivable andpayable; for example, record the purchase on August 1 in Accounts Payable—Abilene.)

Answer 1

Journal Entries for merchandise activities under perpetual system:

Date	Particulars	L/F	Debit $	Credit $
1-Aug	Inventory		6000
	Accounts payable-Abilene			6000
	(Record the Purchases )
4	Accounts payable-Abilene		100
	Cash			100
	(To record the freight paid)
5	Accounts Receivable - Lux		4200
	Sales			4200
	(To record the sales)
	Cost of goods sold		3,000
	Merchandise inventory			3,000
	(To record the cost of goods sold)
8	Inventory		5060
	Freight Expense		240
	Accounts payable-Welch Corp			5300
	(Record the Purchases )
9	Freight Expense		120
	Cash			120
	(To record the freight paid)

Date	Particulars	Debit $	Credit $
10	Inventory	500
	Accounts Receivable - Lux		500
	(To record the sale returns )
12	Accounts payable-Welch Corp	800
	Purchase returns and allowance		800
	(To record the purchase allowance )
15	Cash	3626
	Sales Discount (3700×2%)	74
	Accounts Receivable - Lux		3700
	(To record the cash received from Lux-Corp)
18	Accounts payable-Welch Corp	4740
	Purchase Discount		45
	Cash		46951
	(To record cash paid towards purchases)
19	Accounts receivables -Trax	3600
	Sales		3600
	(To record sales )

Date	Particulars	Debit $	Credit $
22	Sales returns and allowance	600
	Accounts receivables -Trax		600
	(To record the purchase allowance )
29	Cash	29702
	Sales Discount	30
	Accounts receivables -Trax		3000
	(To record the cash received on sales)
30	Accounts payable-Abilene	6000
	Inventory		100
	Cash		5900
	(To clear accounts payable)

Working Notes:

Purchases	5060
Freight	240
Less: Allowance	-800
	4500
Discount @1 %	45
	4455
add back: Freight	240
To be paid	4695

Sales	3600
Less: Allowance	-600
	3000
Discount @1 %	-30
	2970